Viking Systems accused of defaulting on $3 million in convertible notes issued in 2005

By Sheri Kasprzak

New York, Aug. 1 - Viking Systems, Inc. allegedly defaulted on $3 million in convertible notes issued in 2005, and noteholder St. Cloud Capital Partners LP is demanding full payment of an existing $1.5 million loan.

St. Cloud alleges that Viking did not file a registration statement covering the underlying shares issuable upon conversion of the notes in a timely manner, according to an 8-K Viking filed with the Securities and Exchange Commission Tuesday. The investors had already converted their notes into common shares, and because the registration statement was not declared effective, the conversion is void, St. Cloud alleged.

"Although we acknowledge that we have not yet filed a registration statement for the previous note holders, we disagree that the conversion of any note can be rescinded," said the 8-K from Viking. "We do not believe that any former note holder has suffered any damages as a result of the delay in our filing a registration statement for their securities.

"We are working to resolve this matter in the near future and believe there will be no material adverse effect on Viking or its financial position in connection with this issue."

If the company is held in default on the notes, the notes will continue to bear interest at 15%.

The notes were issued Dec. 15, 2005 in principal of $3 million with a 10% coupon and a $0.20 conversion price.

Based in La Jolla, Calif., Viking develops three-dimensional endoscopic vision systems used in minimally invasive surgery.

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